Is Second Commodities Sell-Off a Big Bear Signal?

Nervous was the only way to describe the mood on Wall Street Wednesday, after a rout in commodities sent investors running for cover. That’s the second time a commodities sell-off has rocked markets in the space of only a week.

Declines in energy commanded the Street’s full attention, with crude sliding to less than $100 a barrel. Meanwhile, the bearish sentiment was so intense in gasoline futures they had to be halted on the Nymex for a short time.

But other commodities tumbled too. Silver traded sharply lower as did copper sending natural resource related stocks such as Freeport McMoRan on a roller coaster-style drop.

The move is particularly disconcerting because energy and materials had been the top performing sectors over the past two quarters when stocks rallied.

If gains are not sustainable in materials and energy, and other sectors such as financials face systemic challenges, can the stock market possibly advance?

Tim Seymour is disturbed by the market action and is skeptical that commodities rally can continue in the near-term. Seymour thinks the main catalyst here is the US dollar, which he expects to move higher due to ongoing financial woes in Europe as well as the end of QE2.

With the market taking its cue from commodities lately, “we could be setting up for the market to go much lower this week,” he says.

Guy Adami shares the concern and says “the S&P is starting to scare me.” He reminds the desk that 1350 had been a level of resistance – then support. With the S&P breaking below that key technical level, it suggests 1350 could again be resistance. To confirm his bearish outlook, he points to the action in two bellwethers, Goldman and Freeport. “Since January both have traded poorly,” he says.

Pete Najarian is on the other side of the trade. He’s impressed the market didn’t fall more considering the sharp pullback in commodities. “Valuations are what investors care about,” he says. “That’s been the backbone of the market and they’re holding up. I’m not negative.”

Joe Terranova sides with Najarian. “I wouldn’t take it all off the table. Occidental and Apache are still worth owning,” he says.

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